The IRS and the U.S. Department of Health and Human Services (HHS) have issued two important pieces of guidance under the Patient Protection and Affordable Care Act regarding the responsibilities imposed on individuals to enroll in health coverage.

First, the agencies issued proposed regulations on the tax imposed on individuals who fail to enroll in minimum essential health coverage (the so-called individual “shared responsibility” payment), including exemptions for hardship and other reasons. On the same day, the IRS issued final regulations addressing eligibility for the premium tax credit to assist individuals with household incomes up to 400 percent of the federal poverty level to pay for the cost of health insurance purchased through a State Exchange.

Individual Shared Responsibility Payment

The proposed regulations describe the circumstances in which an individual can qualify for an exemption from the shared responsibility payment. Individuals are exempt under any of the following scenarios:

  • The health coverage available through the State Exchange is unaffordable.
  • The individual has other good cause for being without health coverage.
  • The individual goes without coverage for a short period of time.
  • Certain other limited exceptions apply.

For purposes of avoiding the individual shared responsibility payment, coverage is deemed unaffordable if an individual’s premium amount is more than 8 percent of the individual’s household income.

Generally speaking, an individual must enroll in minimum essential coverage or be liable for the shared responsibility payment. Minimum essential coverage can include employer-sponsored coverage (including COBRA and retiree coverage), Medicare Part A coverage, Medicaid coverage, Children’s Health Insurance Program (CHIP) coverage, TRICARE, and coverage purchased in the individual marketplace through a State or Federally sponsored Exchange. 

The proposed regulations describe certain hardship exemptions, and provide that each State Exchange may certify on a case-by-case basis the availability of a hardship exemption for individuals who cannot obtain coverage because of other unexpected personal or financial circumstances.

The individual shared responsibility payment applies for each month in the calendar year in which the individual is without minimum essential health coverage or an exemption. To avoid the tax, the individual is only required to be covered for at least one day during a calendar month. For example, an individual who is newly hired on November 28, and becomes covered under his or her employer’s health plan as of that date, will have no shared responsibility payment for November.

Premium Tax Credit

Section 36B of the Internal Revenue Code provides for a refundable premium tax credit to help individuals and their families afford basic health insurance coverage. The premium tax credit will be available to eligible individuals who do not have the opportunity to enroll in “affordable” employer-sponsored health coverage.

For purposes of the premium tax credit, employer-provided health coverage will be considered “affordable” if the portion of the annual premium that the employee must pay for self-only coverage is no more than 9.5 percent of the taxpayer’s household income. Individuals whose employers provide them with affordable self-only coverage but unaffordable family coverage may not be eligible for a premium tax credit.